Co-movement of Recessions across Countries - An Empirical Study on GDP, Domestic Credit, and Stock Price -

Hangyong Lee; Kiseok Hong; 홍유화

Journal of Insurance and Finance

2009, 20(3), pp.125-160
Publisher : Korea Insurance Research Institute
Research Area : Business Management

Hangyong Lee ¹ , Kiseok Hong ² , 홍유화 ³

¹ 한양대학교
² 이화여자대학교
³ 이화여자대학교

ABSTRACT

Using panel data from 62 developed and developing countries, this paper empirically examines how economic contractions spread across countries. In particular, we define contraction episodes in GDP, domestic credit, and stock prices and investigate synchronization of those events among economically related countries. Our findings are as follows. First, fluctuations in GDP, domestic credit, and stock prices tend to coincide among countries that are linked through international trade and finance. Second, the comovement is more evident in contractions than expansions. Third, perhaps because of the recent trend of globalization, the international transmission of contractions is more clearly observed in the post-1997 years. Fourth, while the trade linkage is most important in overall transmission of contractions, financial contractions in advanced economies appear to spread to developing economies mainly through financial linkages.
KEYWORDS

economic contraction , financial linkage , probit model , trade linkage
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